UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


———————————


FORM
10-Q





x
            
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the Quarterly Period Ended March 31, 2009





OR






            
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the transition period from _______________ to _______________







Commission
File Number 000-30707





First
Northern Community Bancorp


(Exact
name of registrant as specified in its charter)





California
                  68-0450397(State
      or other jurisdiction of incorporation or organization)
                  (I.R.S.
      Employer Identification
Number)





195
      N. First Street, Dixon, California
                  95620(Address
      of principal executive offices)
                  (Zip
      Code)








707-678-3041


(Registrant’s
telephone number including area code)








Indicate
by check mark whether the Registrant (1) has filed all reports required to be
filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.


Yesx
            No ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files).





Yesr
            Nox





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company (as
defined by Rule 12b-2 of the Exchange Act).





Large accelerated
      filer ̈
            Accelerated
      filerx
            Non-accelerated
      filer ̈
            Smaller reporting
      company ̈





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).





Yes ̈
            Nox





The
number of shares of Common Stock outstanding as of May 8, 2009 was
9,009,462.











FIRST
NORTHERN COMMUNITY BANCORP





INDEX





PagePART
      I:    FINANCIAL INFORMATIONItem
      1
            
            Financial
      StatementsUnaudited
      Condensed Consolidated Balance Sheets
            3Unaudited
      Condensed Consolidated Statements of Income
            4Unaudited
      Condensed Consolidated Statement of Stockholders’ Equity and Comprehensive
      Income
            5Unaudited
      Condensed Consolidated Statements of Cash Flows
            6Notes
      to Unaudited Condensed Consolidated Financial Statements
            7Item
      2
            
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            20Item
      3
            
            Quantitative
      and Qualitative Disclosures About Market Risk
            32Item
      4
            
            Controls
      and Procedures
            33PART
      II:    OTHER INFORMATIONItem
      1A
            
            Risk
      Factors
            33Item
      2
            
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            36Item
      4
            
            Submission
      of Matters to a Vote of Security Holders
            37Item
      6
            
            Exhibits
            38SIGNATURES
            38





2


PART
I - FINANCIAL INFORMATION





ITEM
1.


FIRST
NORTHERN COMMUNITY BANCORP


FINANCIAL
STATEMENTS





CONDENSED
CONSOLIDATED BALANCE SHEETS


(in thousands, except share
amounts)





March
      31,
                
                
                December
      31,2009
                
                
                2008(unaudited)
                
                
                (audited)AssetsCash
      and due from banks
                
                $
                36,292
                
                
                $
                25,150Federal
      funds sold
                
                
                77,710
                
                
                
                40,860Investment
      securities – available-for-sale
                
                
                47,522
                
                
                
                42,106Loans,
      net of allowance for loan losses of $14,463 at March 31,
    2009and
      $14,435 at December 31, 2008
                
                
                480,583
                
                
                
                516,968Loans
      held-for-sale
                
                
                5,159
                
                
                
                2,192Stock
      in Federal Home Loan Bank and other equity securities, at
    cost
                
                
                2,311
                
                
                
                2,311Premises
      and equipment, net
                
                
                7,707
                
                
                
                7,620Other
      Real Estate Owned
                
                
                3,657
                
                
                
                4,368Accrued
      interest receivable and other assets
                
                
                27,483
                
                
                
                29,227Total
      Assets
                
                $
                688,424
                
                
                $
                670,802Liabilities
      and Stockholders’ EquityLiabilities:Demand
      deposits
                
                $
                163,999
                
                
                $
                181,600Interest-bearing
      transaction deposits
                
                
                124,335
                
                
                
                123,614Savings
      and MMDA's
                
                
                165,356
                
                
                
                155,656Time,
      under $100,000
                
                
                56,752
                
                
                
                64,252Time,
      $100,000 and over
                
                
                78,354
                
                
                
                59,596Total deposits
                
                
                588,796
                
                
                
                584,718FHLB
      Advances and other borrowings
                
                
                13,981
                
                
                
                18,259Accrued
      interest payable and other liabilities
                
                
                5,779
                
                
                
                5,796Total
      liabilities
                
                
                608,556
                
                
                
                608,773Stockholders'
      Equity:Preferred
      stock, no par value; $1,000 per share liquidationpreference,
      18,500 shares authorized; 17,390 shares issued andoutstanding
      at March 31, 2009 and none at December 31, 2008
                
                
                16,732
                
                
                
                —Common
      stock, no par value; 16,000,000 shares authorized;8,973,645
      shares issued and outstanding at March 31, 2009 and8,608,802
      shares issued and outstanding at December 31, 2008
                
                
                61,990
                
                
                
                58,983Additional
      paid in capital
                
                
                977
                
                
                
                977Retained
      earnings
                
                
                174
                
                
                
                2,026Accumulated
      other comprehensive (loss) income
                
                
                (5
                )
                
                
                43Total
      stockholders’ equity
                
                
                79,868
                
                
                
                62,029Total
      Liabilities and Stockholders’ Equity
                
                $
                688,424
                
                
                $
                670,802





See notes
to unaudited condensed consolidated financial statements.


3


FIRST
NORTHERN COMMUNITY BANCORP


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME


(in
thousands, except per share amounts)








Three
      months
                
                
                Three
      monthsended
                
                
                endedMarch 31, 2009
                
                
                March 31, 2008Interest
      and Dividend Income:Loans
                
                $
                7,937
                
                
                $
                9,240Federal funds sold
                
                
                19
                
                
                
                290Due
      from banks interest bearing accounts
                
                
                31
                
                
                
                268Investment securitiesTaxable
                
                
                194
                
                
                
                498Non-taxable
                
                
                262
                
                
                
                358Other
      earning assets
                
                
                —
                
                
                
                29Total interest
      and dividend income
                
                
                8,443
                
                
                
                10,683Interest Expense:Deposits
                
                
                1,062
                
                
                
                1,912Other borrowings
                
                
                158
                
                
                
                86Total interest expense
                
                
                1,220
                
                
                
                1,998Net interest income
                
                
                7,223
                
                
                
                8,685Provision
      for  loan losses
                
                
                1,106
                
                
                
                3,659Net interest income after provision
                  for loan losses
                
                
                6,117
                
                
                
                5,026Other operating income:Service charges on deposit accounts
                
                
                863
                
                
                
                924Gains
      on other real estate owned
                
                
                2
                
                
                
                —Gains on sales of loans
      held-for-sale
                
                
                174
                
                
                
                100Investment and brokerage services income
                
                
                149
                
                
                
                177Mortgage brokerage income
                
                
                15
                
                
                
                1Loan servicing income
                
                
                96
                
                
                
                47Fiduciary
      activities income
                
                
                98
                
                
                
                97ATM fees
                
                
                58
                
                
                
                69Signature
      based transaction fees
                
                
                139
                
                
                
                139Gains on sales of available-for-sale securities
                
                
                —
                
                
                
                511Other income
                
                
                146
                
                
                
                207Total other operating income
                
                
                1,740
                
                
                
                2,272Other operating expenses:Salaries and employee benefits
                
                
                3,648
                
                
                
                4,107Occupancy and equipment
                
                
                998
                
                
                
                912Data processing
                
                
                447
                
                
                
                399Stationery and supplies
                
                
                123
                
                
                
                116Advertising
                
                
                161
                
                
                
                175Directors’ fees
                
                
                52
                
                
                
                52Other
      real estate owned expense and write-downs
                
                
                724
                
                
                
                78Other expense
                
                
                1,515
                
                
                
                1,402Total other operating expenses
                
                
                7,668
                
                
                
                7,241Income before benefit for income taxes
                
                
                189
                
                
                
                57Benefit for income taxes
                
                
                (264
                )
                
                
                (3
                )Net  income
                
                $
                453
                
                
                $
                60Preferred
      stock dividends and accretion
                
                $
                (51
                )
                
                
                —Net  income
      available to
      common          shareholders
                
                $
                402
                
                
                $
                60Basic
      income per share
                
                $
                0.04
                
                
                $
                0.01Diluted income per share
                
                $
                0.04
                
                
                $
                0.01





See notes
to unaudited condensed consolidated financial statements.


4


FIRST
NORTHERN COMMUNITY BANCORP


UNAUDITED
CONDENSED CONSOLIDATED STATEMENT


OF
STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME


(in
      thousands, except share amounts)AccumulatedAdditional
                
                
                
                
                
                OtherPreferred
                
                
                Common
      Stock
                
                
                Comprehensive
                
                
                Paid-in
                
                
                Retained
                
                
                ComprehensiveStock
                
                
                Shares
                
                
                Amounts
                
                
                Income
      (Loss)
                
                
                Capital
                
                
                Earnings
                
                
                Loss
                
                
                TotalBalance
      at December 31, 2008
                
                $
                —
                
                
                
                8,608,802
                
                
                $
                58,983
                
                
                
                
                
                $
                977
                
                
                $
                2,026
                
                
                $
                43
                
                
                $
                62,029Comprehensive
      income (loss):Net
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                453
                
                
                
                
                
                
                
                453
                
                
                
                
                
                
                
                453Other
      comprehensive income (loss), net of tax:Unrealized
      holding losses on securities arising during the current period, net of tax
      effect of $31
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (48
                )Total
      other comprehensive loss, net of tax effect of $31
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (48
                )
                
                
                
                
                
                
                
                
                
                
                (48
                )
                
                
                (48
                )Comprehensive
      income
                
                
                
                
                
                
                
                
                
                
                
                
                
                $
                405Issuance
      of preferred stock
                
                
                16,726
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                16,726Issuance
      of common stock warrants
                
                
                
                
                
                
                
                
                
                
                664
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                6644%
      stock dividend
                
                
                
                
                
                
                346,011
                
                
                
                2,249
                
                
                
                
                
                
                
                
                
                
                
                (2,249
                )
                
                
                
                
                
                
                —Dividend
      on preferred stock
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (45
                )
                
                
                
                
                
                
                (45
                )Accretion
      of preferred stock
                
                
                6
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (6
                )
                
                
                
                
                
                
                —Cash
      in lieu of fractional shares
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (5
                )
                
                
                
                
                
                
                (5
                )Stock-based
      compensation and related tax benefits
                
                
                
                
                
                
                
                
                
                
                94
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                94Common
      shares issued, stock options exercised, net of swapped
    shares
                
                
                
                
                
                
                18,832
                
                
                
                —Balance
      at March 31, 2009
                
                $
                16,732
                
                
                
                8,973,645
                
                
                $
                61,990
                
                
                
                
                
                
                $
                977
                
                
                $
                174
                
                
                $
                (5
                )
                
                $
                79,868





See notes
to unaudited condensed consolidated financial statements.










5





FIRST
NORTHERN COMMUNITY BANCORP


UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS





(in
      thousands)Three
      months ended March 31, 2009
                
                
                Three
      months ended March 31, 2008Cash
      Flows From Operating ActivitiesNet
      Income
                
                $
                453
                
                
                $
                60Adjustments to reconcile net income to net
      cash provided byoperating activities:Depreciation
      and amortization
                
                
                244
                
                
                
                264Provision
      for loan losses
                
                
                1,106
                
                
                
                3,659Stock
      plan accruals
                
                
                94
                
                
                
                123Tax
      benefit for stock options
                
                
                —
                
                
                
                20Gains
      on sales of available-for-sale securities
                
                
                —
                
                
                
                (511
                )(Gains)
      losses on sales of other real estate owned
                
                
                (2
                )
                
                
                —Write-downs
      on other real estate owned
                
                
                713
                
                
                
                69Gains
      on sales of loans held-for-sale
                
                
                (174
                )
                
                
                (100
                )Proceeds
      from sales of loans held-for-sale
                
                
                31,392
                
                
                
                13,220Originations
      of loans held-for-sale
                
                
                (34,185
                )
                
                
                (12,650
                )Changes
      in assets and liabilities:Increase
      in accrued interest receivable and other assets
                
                
                1,776
                
                
                
                1,121Decrease
      in accrued interest payable and other liabilities
                
                
                (62
                )
                
                
                (1,543
                )Net cash
      provided by operating activities
                
                
                1,355
                
                
                
                3,732Cash
      Flows From Investing ActivitiesNet
      (increase)
decrease in investment securities
                
                
                (5,496
                )
                
                
                13,098Net
      decrease in loans
                
                
                35,279
                
                
                
                8,992Net
      increase in other interest earning assets
                
                
                —
                
                
                
                (28
                )Purchases of premises and equipment, net
                
                
                (331
                )
                
                
                (287
                )Net cash
      provided by investing activities
                
                
                29,452
                
                
                
                21,775Cash
      Flows From Financing ActivitiesNet
      increase (decrease) in deposits
                
                
                4,078
                
                
                
                (22,053
                )Proceeds
      from issuance of preferred stock
                
                
                16,726
                
                
                
                —Proceeds
      from issuance of common stock warrants
                
                
                664
                
                
                
                —Net decrease in FHLB advances
      and other borrowings
                
                
                (4,278
                )
                
                
                (4,718
                )Cash dividends paid
                
                
                (5
                )
                
                
                (10
                )Tax
      benefit for stock options
                
                
                —
                
                
                
                (20
                )Repurchase of stock
                
                
                —
                
                
                
                (1,356
                )Net cash
      provided by (used) in financing activities
                
                
                17,185
                
                
                
                (28,157
                )Net Increase
      (Decrease)
in Cash and Cash Equivalents
                
                
                47,992
                
                
                
                (2,650
                )Cash and Cash Equivalents,
      beginning of period
                
                
                66,010
                
                
                
                99,030Cash and Cash Equivalents,end of period
                
                $
                114,002
                
                
                $
                96,380Supplemental Disclosures of Cash Flow Information:Cash paid during the period for:Interest
                
                $
                1,260
                
                
                $
                2,113Supplemental disclosures of non-cash investing and financing activities:Preferred
      stock dividend payable and accretion
                
                $
                51
                
                
                
                —Transfer
      of loans held-for-investment to other real estate owned
                
                
                —
                
                
                $
                406Stock dividend distributed
                
                $
                2,249
                
                
                $
                8,642





See notes
to unaudited condensed consolidated financial statements.


6





FIRST
NORTHERN COMMUNITY BANCORP


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


March
31, 2009 and 2008 and December 31, 2008





1.
            BASIS
      OF PRESENTATION





The
accompanying unaudited condensed consolidated financial statements of First
Northern Community Bancorp (the “Company”) have been prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP)
for interim financial information and with the instructions to Form 10-Q and
Articles 9 and 10 of Regulation S-X.  Accordingly, they do not include
all of the information and notes required by GAAP for complete financial
statements.  In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included.  The results of operations for any interim period are
not necessarily indicative of results expected for the full
year.  These condensed consolidated financial statements should be
read in conjunction with the consolidated financial statements and notes thereto
contained in the Company’s Annual Report to stockholders and Form 10-K for the
year ended December 31, 2008 as filed with the Securities and Exchange
Commission.  The preparation of financial statements in conformity
with GAAP also requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expense during the reporting period.  Actual
results could differ from those estimates.  All material intercompany
balances and transactions have been eliminated in consolidation.





Recently
Issued Accounting Pronouncements:





In
December 2007, the Financial Accounting Standards Board (the “FASB”) issued SFAS
No. 141R, Business
Combinations, which requires most identifiable assets, liabilities,
non-controlling interests, and goodwill acquired in a business combination to be
recorded at “full fair value” at the acquisition date.  SFAS No. 141R
applies to all business combinations, including combinations among mutual
entities and combinations by contract alone.  Under SFAS No. 141R, all
business combinations will be accounted for by applying the acquisition
method.  SFAS No. 141R is effective for periods beginning on or after
December 15, 2008.  Earlier application is prohibited.  SFAS
No. 141R will be applied to business combinations occurring after the effective
date.  The Company currently does not have any business combination
contemplated that are expected to be closed after the effective date; therefore,
the adoption of SFAS No. 141R will not have an impact, if any, on the
consolidated financial statements or results of operations of the
Company.





In
December 2007, the SEC issued Staff Accounting Bulletin No. 110 (“SAB No. 110”),
Certain Assumptions Used in
Valuation Methods, which extends the use of the “simplified” method,
under certain circumstances, in developing an estimate of expected term of
“plain vanilla” share options in accordance with SFAS No. 123R.  Prior
to SAB No. 110, SAB No. 107 stated that the simplified method was only available
for grants made up to December 31, 2007.  The Company currently plans
to continue to use the simplified method in developing an estimate of expected
term of stock options.





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities (“SFAS 161”).  SFAS 161
requires enhanced disclosures about an entity’s derivative and hedging
activities and thereby improving the transparency of financial
reporting.  It is intended to enhance the current disclosure framework
in SFAS 133 by requiring that objectives for using derivative instruments be
disclosed in terms of underlying risk and accounting
designation.  This disclosure better conveys the purpose of derivative
use in terms of the risks that the entity is intending to
manage.  SFAS 161 was effective for the Company on January 1, 2009 and
will result in additional disclosures if the Company enters into any material
derivative or hedging activities.





In May
2008, the FASB issued FASB Statement No. 162, The Hierarchy of Generally Accepted
Accounting Principals (SFAS 162).  SFAS 162 is intended to
improve financial statements that are presented in conformity with U.S.
generally accepted accounting principals for non-governmental
entities.  SFAS 162 is effective 60 days following the SEC’s approval
of the PCAOB amendments to AU Section 411, The Meaning of Present Fairly in
Conformity with Generally Accepted Accounting
Principals.


7


Management
does not believe the adoption of SFAS 162 will have a material impact on the
Company’s financial statements.




In June,
2008, the FASB issued FASB Staff Position No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions are Participating Securities,
(“FSP EITF 03-6-1”).  The Staff Position provides that unvested
share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents are participating securities and must be included in the
earnings per share computation.  FSP EITF 03-6-1 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those years.  All prior-period earnings per
share data presented must be adjusted retrospectively.  Early
application is not permitted.  The adoption of the Staff Position had
no material effect on the Company’s financial position, results of operations or
cash flows.






On April
9, 2009, the FASB issued three Staff Positions (FSPs) intended to provide
additional application guidance and enhance disclosures regarding fair value
measurements and impairments of securities.  FSP FAS 157-4,
“Determining Fair Value When the Volume and Level of Activity for the Asset or
Liability Have Significantly Decreased and Identifying Transactions That Are Not
Orderly”, provides guidelines for making fair value measurements more consistent
with the principles presented in FASB Statement No. 157, Fair Value
Measurements.  FSP FAS 107-1 and APB 28-1, Interim Disclosures about
Fair Value of Financial Instruments, enhances consistency in financial reporting
by increasing the frequency of fair value disclosures.  FSP FAS 115-2
and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary
Impairments”, provides additional guidance designed to create greater clarity
and consistency in accounting for and presenting impairment losses on
securities.






FSP FAS
157-4 relates to determining fair values when there is no active market or where
the price inputs being used represent distressed sales.  It reaffirms
the need to use judgment to ascertain if a formerly active market has become
inactive and in determining fair values when markets have become
inactive.






FSP FAS
107-1 and APB 28-1 relate to fair value disclosures for any financial
instruments that are not currently reflected on the balance sheet of companies
at fair value.  Prior to issuing this FSP, fair values for these
assets and liabilities were only disclosed once a year.  The FSP now
requires these disclosures on a quarterly basis, providing qualitative and
quantitative information about fair value estimates for all those financial
instruments not measured on the balance sheet at fair value.






FSP FAS
115-2 and FAS 124-2 on other-than-temporary impairments are intended to bring
greater consistency to the timing of impairment recognition, and provide greater
clarity to investors about the credit and noncredit components of impaired debt
securities that are not expected to be sold.  The measure of
impairment in comprehensive income remains fair value.  The FSP also
requires increased and timelier disclosures sought by investors regarding
expected cash flows, credit losses, and an aging of securities with unrealized
losses.






The FSPs
are effective for interim and annual periods ending after June 15, 2009, but
entities may early adopt the FSPs for the interim and annual periods ending
after March 15, 2009.  The Company is currently assessing the impact
of these FSPs on its financial statements.






Reclassifications




Certain
reclassifications have been made to prior period balances in order to conform to
the current year presentation.








8


2.           ALLOWANCE
FOR LOAN LOSSES





The
allowance for loan losses is maintained at levels considered adequate by
management to provide for loan losses that can be reasonably
anticipated.  The allowance is based on management's assessment of
various factors affecting the loan portfolio, including problem loans, economic
conditions and loan loss experience, and an overall evaluation of the quality of
the underlying collateral.  See discussion on page 29 “Asset Quality”
regarding impaired/problem loans.





Changes
in the allowance for loan losses during the three-month periods ended March 31,
2009 and 2008 and for the year ended December 31, 2008 were as
follows:


(in
      thousands)Three
      months ended
                  March
      31,
                
                
                Year
      ended December 31,2009
                
                
                2008
                
                
                2008Balance,
      beginning of period
                
                $
                14,435
                
                
                $
                10,876
                
                
                $
                10,876Provision
      for loan losses
                
                
                1,106
                
                
                
                3,659
                
                
                
                16,164Loan
      charge-offs
                
                
                (1,570
                )
                
                
                (3,066
                )
                
                
                (13,324
                )Loan
      recoveries
                
                
                492
                
                
                
                178
                
                
                
                719Balance,
      end of period
                
                $
                14,463
                
                
                $
                11,647
                
                
                $
                14,435







3.
            MORTGAGE
      OPERATIONS





Transfers
and servicing of financial assets and extinguishments of liabilities are
accounted for and reported based on consistent application of a
financial-components approach that focuses on control.  Transfers of
financial assets that are sales are distinguished from transfers that are
secured borrowings.  Retained interests (mortgage servicing rights) in
loans sold are measured by allocating the previous carrying amount of the
transferred assets between the loans sold and retained interests, if any, based
on their relative fair value at the date of transfer.  Fair values are
estimated using discounted cash flows based on a current market interest
rate.





The
Company recognizes a gain and a related asset for the fair value of the rights
to service loans for others when loans are sold.  The Company sold
substantially its entire conforming long-term residential mortgage loans
originated during the three months ended March 31, 2009 for cash proceeds equal
to the fair value of the loans.





The
recorded value of mortgage servicing rights is included in other assets, and is
amortized in proportion to, and over the period of, estimated net servicing
revenues.  The Company assesses capitalized mortgage servicing rights
for impairment based upon the fair value of those rights at each reporting date.
For purposes of measuring impairment, the rights are stratified based upon the
product type, term and interest rates.  Fair value is determined by
discounting estimated net future cash flows from mortgage servicing activities
using discount rates that approximate current market rates and estimated
prepayment rates, among other assumptions.  The amount of impairment
recognized, if any, is the amount by which the capitalized mortgage servicing
rights for a stratum exceeds their fair value.  Impairment, if any, is
recognized through a valuation allowance for each individual
stratum.





At March
31, 2009, the Company had $5,159,000 of mortgage loans
held-for-sale.  At March 31, 2009 and December 31, 2008, the Company
serviced real estate mortgage loans for others of $138,443,000 and $122,734,000,
respectively.







9


The
following table summarizes the Company’s mortgage servicing rights assets as of
March 31, 2009 and December 31, 2008.





(in
      thousands)December
      31, 2008
                
                
                Additions
                
                
                Reductions
                
                
                March
      31,
                  2009Mortgage
      servicing rights
                
                $
                978
                
                
                $
                186
                
                
                $
                52
                
                
                $
                1,112Valuation
      allowance
                
                
                (85
                )
                
                
                (119
                )
                
                
                —
                
                
                
                (204
                )Mortgage
      servicing rights, net of valuation allowance
                
                $
                893
                
                
                $
                67
                
                
                $
                52
                
                
                $
                908








10


4.           OUTSTANDING
SHARES AND EARNINGS PER SHARE





On
January 22, 2009, the Board of Directors of the Company declared a 4% stock
dividend payable as of March 31, 2009 to shareholders of record as of
February 27, 2009.  All income per share amounts have been adjusted to
give retroactive effect to stock dividends.





Earnings
Per Share (EPS)





Basic EPS
includes no dilution and is computed by dividing net income by the weighted
average number of common shares outstanding for the period.  Diluted
EPS includes all common stock equivalents (“in-the-money” stock options,
unvested restricted stock, stock units, warrants and rights, convertible bonds
and preferred stock), which reflects the potential dilution of securities that
could share in the earnings of an entity.








The
following table presents a reconciliation of basic and diluted EPS for the
three-month periods ended March 31, 2009 and 2008





(in
      thousands, except share and earnings per share amounts)Three
      months endedMarch
      31,2009
                
                
                2008Basic
      earnings per share:Net
      income
                
                $
                453
                
                
                $
                60Preferred
      stock dividend and accretion
                
                $
                (51
                )
                
                
                —Net
      income available to common shareholders
                
                $
                402
                
                
                $
                60Weighted
      average common shares outstanding
                
                
                8,964,482
                
                
                
                9,157,511Basic
      EPS
                
                $
                0.04
                
                
                $
                0.01Diluted
      earnings per share:Net
      income
                
                $
                453
                
                
                $
                60Preferred
      stock dividend and accretion
                
                $
                (51
                )
                
                
                —Net
      income available to common shareholders
                
                $
                402
                
                
                $
                60Weighted
      average common shares outstanding
                
                
                8,964,482
                
                
                
                9,157,511Effect
      of dilutive options
                
                
                26,407
                
                
                
                193,376Adjusted
      weighted average common shares outstanding
                
                
                8,990,889
                
                
                
                9,350,887Diluted
      EPS
                
                $
                0.04
                
                
                $
                0.01




Options
not included in the computation of diluted earnings per share because they would
have had an anti-dilutive effect amounted to 429,954 shares and 120,366 shares
for the three months ended March 31, 2009 and 2008 respectively.  In
addition, 352,977 warrants issued to the US Treasury were not used in the
computation of diluted earnings per share because they would have had an
anti-dilutive effect.


11





5.
            STOCK
      PLANS







The
following table presents the activity related to stock options for the three
months ended March 31, 2009.





Number
      of Shares
                
                
                Weighted
      Average Exercise Price
                
                
                Aggregate
      Intrinsic Value
                
                
                Weighted
      Average Remaining Contractual Term (in years)Options
      outstanding at Beginning of  Period
                
                
                555,591
                
                
                $
                10.71Granted
                
                
                8,000
                
                
                $
                4.50Cancelled
      / Forfeited
                
                
                (1,840
                )
                
                $
                3.65Exercised
                
                
                (41,415
                )
                
                $
                3.81
                
                
                $
                101,246Options
      outstanding at End of Period
                
                
                520,336
                
                
                $
                11.19
                
                
                $
                17,998
                
                
                
                4.79Exercisable
      (vested) at End of Period
                
                
                462,840
                
                
                $
                10.40
                
                
                $
                14,078
                
                
                
                4.41








The
weighted average fair value of options granted during the three-month period
ended March 31, 2009 was $1.75 per share.





As of
March 31, 2009, there was $240,000 of total unrecognized compensation cost
related to non-vested stock options.  This cost is expected to be
recognized over a weighted average period of approximately 1.63
years.





There was
$45,000 of recognized compensation cost related to non-vested stock options for
the three months ended March 31, 2009.





A summary
of the weighted average assumptions used in valuing stock options during the
three months ended March 31, 2009 is presented below:








Three
      Months EndedMarch
      31, 2009Risk
      Free Interest Rate
                2.00%Expected
      Dividend Yield
                0.00%Expected
      Life in Years
                5Expected
      Price Volatility
                41.39%










12


The
following table presents the activity related to restricted stock for the three
months ended March 31, 2009.







Number
      of Shares
                
                
                Weighted
      Average Grant-Date Fair Value
                
                
                Aggregate
      Intrinsic Value
                
                Weighted
      Average
                  Remaining
      Contractual Term
                  (in
      years)Options
      outstanding at Beginning of  Period
                
                
                31,071
                
                
                $
                16.03Granted
                
                
                9,300
                
                
                $
                4.50Cancelled
      / Forfeited
                
                
                —
                
                
                
                —Exercised/Released/Vested
                
                
                (4,554
                )
                
                $
                14.79
                
                
                $
                22,551Options
      outstanding at End of Period
                
                
                35,817
                
                
                $
                13.20
                
                
                $
                178,727
                
                8.90







The
weighted average fair value of options granted during the three-month period
ended March 31, 2009 was $4.50 per share.





As of
March 31, 2009, there was $306,000 of total unrecognized compensation cost
related to non-vested restricted stock.  This cost is expected to be
recognized over a weighted average period of approximately 2.76
years.





There was
$31,000 of recognized compensation cost related to non-vested stock options for
the three months ended March 31, 2009.







13


The
Company has a 2000 Employee Stock Purchase Plan (“ESPP”).  Under the
plan, the Company is authorized to issue to eligible employees shares of common
stock.  There are 292,136 (adjusted for the 2009 stock dividend)
shares authorized under the ESPP.  The ESPP will terminate
February 27, 2017.  The ESPP is implemented by participation
periods of not more than twenty-seven months each.  The Board of
Directors determines the commencement date and duration of each participation
period.  The Board of Directors approved the current participation
period of November 24, 2008 to November 23, 2009.  An eligible
employee is one who has been continually employed for at least ninety (90) days
prior to commencement of a participation period. Under the terms of the ESPP,
employees can choose to have up to 10 percent of their compensation withheld to
purchase the Company’s common stock each participation period.  The
purchase price of the stock is 85 percent of the lower of the fair market value
on the last trading day before the date of participation or the fair market
value on the last trading day during the participation period.





As of
March 31, 2009, there was $53,000 of unrecognized compensation cost related to
ESPP grants.  This cost is expected to be recognized over a weighted
average period of approximately 0.75 years.





There was
$18,000 of recognized compensation cost related to ESPP grants for the
three-month period ended March 31, 2009.





The
weighted average fair value at grant date during the three-month period ended
March 31, 2009 was $2.36.





A summary
of the weighted average assumptions used in valuing ESPP grants during the three
months ended March 31, 2009 is presented below:







Three
      Months EndedMarch
      31, 2009Risk
      Free Interest Rate
                0.95%Expected
      Dividend Yield
                0.00%Expected
      Life in Years
                1.00Expected
      Price Volatility
                48.13%







14


6.           EXECUTIVE
SALARY CONTINUATION PLAN





The
Company has an unfunded non-contributory defined benefit pension plan provided
in two forms to a select group of highly compensated employees.





Four
executives have Salary Continuation Plans providing retirement benefits between
$50,000 and $100,000 based on responsibilities and tenure at the
Company.  The retirement benefits are paid for 10 years following
retirement at age 65.  Reduced retirement benefits are available after
age 55 and 10 years of service.





The
Supplemental Executive Retirement Plan is intended to provide a fixed annual
benefit for 10 years plus 6 months for each full year of service over 10 years
(limited to 180 months total) subsequent to retirement at age
65.  Reduced benefits are payable as early as age 55 if the
participant has at least 10 years of service.  Two employees currently
have Supplemental Executive Retirement Plan agreements.  The
agreements provide a target benefit of 2% (2.5% for the CEO) times years of
service multiplied by final average compensation.  Final average
compensation is defined as three-year average salary plus seven-year average
bonus.  The target benefit is reduced by benefits from social security
and the Company's profit sharing plan.  The maximum target benefit is
50% of final average compensation.








Three
      months ended March 31,2009
                                          
                                          
                                          2008Components
      of Net Periodic Benefit CostService
      Cost
                                          
                                          $
                                          3,990
                                          
                                          
                                          $
                                          33,232Interest  Cost
                                          
                                          
                                          26,418
                                          
                                          
                                          
                                          29,684Amortization
      of Plan Gain
                                          
                                          
                                          (8,180
                                          )
                                          
                                          
                                          —Amortization
      of prior service cost
                                          
                                          
                                          21,821
                                          
                                          
                                          
                                          21,821Net
      periodic benefit cost
                                          
                                          $
                                          44,049
                                          
                                          
                                          $
                                          84,737





The
Company estimates that the annual net periodic benefit cost will be $176,196 for
the year ended December 31, 2009  This compares to an annual net
periodic benefit cost of $336,855 for the year ended December 31,
2008.





Estimated
Contributions for Fiscal 2009





For
unfunded plans, contributions to the Executive Salary Continuation Plan are the
benefit payments made to participants.  At December 31, 2008 the
Company expected to make benefit payments of $54,144 in connection with the
Executive Salary Continuation Plan during fiscal 2009.







15





7.
            DIRECTORS’
      RETIREMENT PLAN





The
Company has an unfunded non-contributory defined benefit pension plan
("Directors’ Retirement Plan").  The Directors’ Retirement Plan
provides a retirement benefit equal to $1,000 per year of service as a director
up to a maximum benefit of $15,000.  The retirement benefit is payable
monthly for 10 years following retirement at age 65.  Reduced
retirement benefits are available after age 55 and 10 years of
service.





Three
      months ended March 31,2009
                        
                        
                        2008Components
      of Net Periodic Benefit CostService
      Cost
                        
                        $
                        11,088
                        
                        
                        $
                        14,424Interest  Cost
                        
                        
                        7,921
                        
                        
                        
                        7,731Amortization
      of net loss
                        
                        
                        —
                        
                        
                        
                        —Net
      periodic benefit cost
                        
                        $
                        19,009
                        
                        
                        $
                        22,155





The
Company estimates that the annual net periodic benefit cost will be $76,034 for
the year ended December 31, 2009.  This compares to annual net
periodic benefit costs of $88,622 for the year ended December 31,
2008.





Estimated
Contributions for Fiscal 2009





For
unfunded plans, contributions to the Directors’ Retirement Plan are the benefit
payments made to participants.  At December 31, 2008 the Company
expected to make cash contributions of $15,000 to the Directors’ Retirement Plan
during fiscal 2009.













16





8.
            FAIR
      VALUE MEASUREMENT





The
Company utilizes fair value measurements to record fair value adjustments to
certain assets and liabilities and to determine fair value
disclosures.  Securities available-for-sale, trading securities and
derivatives are recorded at fair value on a recurring
basis.  Additionally, from time to time, the Company may be required
to record at fair value other assets on a non-recurring basis, such as loans
held-for-sale, loans held-for-investment and certain other
assets.  These non-recurring fair value adjustments typically involve
application of lower of cost or market accounting or write-downs of individual
assets.





Fair Value
Hierarchy





Under
SFAS No. 157, the Company groups assets and liabilities at fair value in three
levels, based on the markets in which the assets and liabilities are traded and
the reliability of the assumptions used to determine fair
value.  These levels are:





Level
      1
              Valuation
      is based upon quoted prices for identical instruments traded in active
      markets.Level
      2
              Valuation
      is based upon quoted prices for similar instruments in active markets,
      quoted prices for identical or similar instruments in markets that are not
      active and model-based valuation techniques for which all significant
      assumptions are observable or can be corroborated by observable market
      data.Level
      3
              Valuation
      is generated from model-based techniques that use at least one significant
      assumption not observable in the market.  These unobservable
      assumptions reflect estimates of assumptions that market participants
      would use in pricing the asset or liability.  Valuation
      techniques include use of option pricing models, discounted cash flow
      models, and similar techniques and include management judgment and
      estimation which may be
significant.





Following
is a description of valuation methodologies used for assets and liabilities
recorded at fair value.





Investment Securities
Available-for-Sale




Investment
securities available-for-sale are recorded at fair value on a recurring
basis.  Fair value measurement is based upon quoted market prices, if
available.  If quoted market prices are not available, fair values are
measured using independent pricing models or other model-based valuation
techniques such as the present value of future cash flows, adjusted for the
security’s credit rating, prepayment assumptions, and other factors such as
credit loss assumptions.  Level 1 securities include those traded on
an active exchange, such as the New York Stock Exchange, U.S. Treasury
securities that are traded by dealers or brokers in active over-the-counter
markets and money market funds.  Level 2 securities include
mortgage-backed securities issued by government sponsored entities, municipal
bonds and corporate debt securities.  Securities classified as Level 3
include asset-backed securities in less liquid markets.





Loans
Held-for-Sale





Loans
held-for-sale are carried at the lower of cost or market value.  The
fair value of loans held-for-sale is based on what secondary markets are
currently offering for portfolios with similar characteristics.  As
such, the Company classifies loans subjected to non-recurring fair value
adjustments as Level 2.







17


Loans





The
Company does not record loans at fair value on a recurring
basis.  However, from time to time, a loan is considered impaired and
an allowance for loan losses is established.  Loans for which it is
probable that payment of interest and principal will not be made in accordance
with the contractual terms of the loan agreement are considered
impaired.  Once a loan is identified as individually impaired, the
Company measures impairment in accordance with SFAS No. 114, “Accounting by
Creditors for Impairment of a Loan” (SFAS No.
114).  The fair value of impaired loans is estimated using one of
several methods, including collateral value, market value of similar debt,
enterprise value, liquidation value and discounted cash flows.  Those
impaired loans not requiring an allowance represent loans for which the fair
value of the expected repayments or collateral exceed the recorded investments
in such loans.  At March 31, 2009, substantially all of the total
impaired loans were evaluated based on the fair value of the underlying
collateral securing the loan.  In accordance with SFAS No. 157,
impaired loans where an allowance is established based on the fair value of
collateral require classification in the fair value hierarchy.  When
the fair value of the collateral is based on an observable market price or a
current appraised value, the Company records the impaired loan as non-recurring
Level 2.  When an appraised value is not available or management
determines the fair value of the collateral is further impaired below the
appraised value and there is no observable market price, the Company records the
impaired loan as non-recurring Level 3.





Loan Servicing
Rights





Loan
servicing rights are subject to impairment testing.  A valuation
model, which utilizes a discounted cash flow analysis using interest rates and
prepayment speed assumptions currently quoted for comparable instruments and a
discount rate determined by management, is used in the completion of impairment
testing.  If the valuation model reflects a value less than the
carrying value, loan servicing rights are adjusted to fair value through a
valuation allowance as determined by the model.  As such, the Company
classifies loan servicing rights subjected to non-recurring fair value
adjustments as Level 3.





Assets Recorded at Fair
Value on a Recurring Basis





The table
below presents the recorded amount of assets and liabilities measured at fair
value on a recurring basis as of March 31, 2009 by SFAS No. 157 valuation
hierarchy.


(in
      thousands)March
      31, 2009
                              
                              Total
                              
                              
                              Level
      1
                              
                              
                              Level
      2
                              
                              
                              Level
      3Investment
      securities available-for-sale
                              
                              $
                              47,522
                              
                              
                              $
                              1,312
                              
                              
                              $
                              46,210
                              
                              
                              $
                              —Total
      investments at fair value
                              
                              $
                              47,522
                              
                              
                              $
                              1,312
                              
                              
                              $
                              46,210
                              
                              
                              $
                              —





Assets Recorded at Fair
Value on a Non-recurring Basis





The
Company may be required, from time to time, to measure certain assets at fair
value on a non-recurring basis in accordance with U.S. GAAP.  These
include assets that are measured at the lower of cost or market that were
recognized at fair value below cost at the end of the period.





Assets
measured at fair value on a non-recurring basis are included in the table below
by level within the fair value hierarchy as of March 31, 2009.


(in
      thousands)March
      31, 2009
                                              
                                              Total
                                              
                                              
                                              Level
      1
                                              
                                              
                                              Level
      2
                                              
                                              
                                              Level
      3Impaired
      loans
                                              
                                              $
                                              17,244
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              17,244Loan
      servicing rights
                                              
                                              
                                              908
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              908Total
      impaired loans and loan servicing rights at fair value
                                              
                                              $
                                              18,152
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              18,152





18





9.
            PREFERRED
      STOCK AND COMMON STOCK WARRANTS





On March
13, 2009, we issued to the U.S. Treasury 17,390 shares of our Fixed Rate
Cumulative Perpetual Preferred Stock, Series A, par value $0.01 per share,
having a liquidation preference per share equal to $1,000. The Series A
Preferred Stock pays cumulative dividends at a rate of 5% per year for the first
five years and thereafter at a rate of 9% per year. At any time, we may, at our
option, subject to any necessary bank regulatory approval, redeem the Series A
Preferred Stock at a price equal to its liquidation preference plus accrued and
unpaid dividends. The Series A Preferred Stock is generally
non-voting.  We are not permitted to increase dividends on our common
shares above the amount of the last quarterly cash dividend per share declared
prior to March 13, 2009 without the U.S. Treasury’s approval (but this does not
affect our ability to declare and pay stock dividends) unless all of the Series
A Preferred Shares have been redeemed or transferred by the U.S. Treasury to
unaffiliated third parties.  The consent of the U.S. Treasury
generally is required for us to make any stock repurchase (other than in
connection with the administration of any employee benefit plan in the ordinary
course of business and consistent with past practice), unless all of the Series
A Preferred Shares have been redeemed or transferred by the U.S. Treasury to
unaffiliated third parties.  Further, our common shares may not be
repurchased if we are in arrears on the payment of Series A Preferred Shares
dividends.  The U.S. Treasury, as part of the preferred stock
issuance, received a warrant to purchase 352,977 shares of our common stock at
an initial exercise price of $7.39. The warrant has been adjusted for a 4% stock
dividend issued on March 31, 2009.   The proceeds from the U.S.
Treasury were allocated based on the relative fair value of the warrants as
compared with the fair value of the preferred stock.  The fair value
of the warrants was determined using a valuation model which incorporates
assumptions including our common stock price, dividend yield, stock price
volatility and the risk-free interest rate. The fair value of the preferred
stock is determined based on assumptions regarding the discount rate (market
rate) on the preferred stock which was estimated to be approximately 12% at the
date of issuance. The discount on the preferred stock will be accreted to par
value using a constant effective yield of approximately 5.9% over a ten-year
term, which is the expected life of the preferred stock.







19


ITEM
2.


FIRST
NORTHERN COMMUNITY BANCORP


MANAGEMENT’S
DISCUSSION AND ANALYSIS OF


FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





FORWARD-LOOKING
STATEMENTS





This
Report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, and subject to the "safe harbor" created by
those sections.  Forward-looking statements include the information
concerning possible or assumed future results of operations of the Company set
forth under the heading "Management's Discussion and Analysis of Financial
Condition and Results of Operations” and elsewhere in this
Report.  Forward-looking statements also include statements in which
words such as "expect," "anticipate," "intend," "plan," "believe," estimate,"
"consider" or similar expressions are used, and include assumptions concerning
the Company's operations, future results, and prospects.  These
forward-looking statements are based upon current expectations and are subject
to risks, uncertainties and assumptions, which are difficult to
predict.  Therefore, actual outcomes and results may differ materially
from those set forth in or implied by the forward-looking statements and related
assumptions.  Some factors that may cause actual results to differ
from the forward-looking statements include the following: (i) the effect of
changing regional and national economic conditions, including the continuing
fiscal challenges for the State of California and the financial crisis affecting
the banking system and financial markets; (ii) uncertainty regarding the
economic outlook resulting from the continuing hostilities in the Middle East
and the war on terrorism, as well as actions taken or to be taken by the United
States or other governments as a result of further acts or threats of terrorism;
(iii) significant changes in interest rates and prepayment speeds; (iv) credit
risks of commercial, agricultural, real estate, consumer and other lending
activities; (v) adverse effects of current and future federal and state banking
or other laws and regulations or governmental fiscal or monetary policies
including legislative responses to the financial crisis affecting the banking
system and financial markets; (vi) competition in the banking industry; (vii)
changes in demand for loan products and other bank products; (viii) changes in
accounting standards; (ix) our participation in the U.S. Treasury TARP Capital
Purchase Program;  and (x) other external developments which could
materially impact the Company's operational and financial
performance.  Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
hereof.  The Company undertakes no obligation to update any
forward-looking statements to reflect events or circumstances arising after the
date on which they are made.  For additional information concerning
risks and uncertainties related to the Company and its operations, please refer
to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008
and Item 1A. of Part II of this Report.





The
following is a discussion and analysis of the significant changes in the
Company’s Unaudited Condensed Consolidated Balance Sheets and of the significant
changes in income and expenses reported in the Company’s Unaudited Condensed
Consolidated Statements of Income and Stockholders’ Equity and Comprehensive
Income as of and for the three-month periods ended March 31, 2009 and 2008 and
should be read in conjunction with the Company's consolidated 2008 financial
statements and the notes thereto contained in the Company’s Annual Report to
Stockholders and Form 10-K for the year ended December 31, 2008, along with
other financial information included in this Report.







20


INTRODUCTION





This
overview of Management’s Discussion and Analysis highlights selected information
in this Report and may not contain all of the information that is important to
you.  For a more complete understanding of trends, events,
commitments, uncertainties, liquidity, capital resources and critical accounting
estimates, you should carefully read this entire Report, together with our
Consolidated Financial Statements and the Notes to Consolidated Financial
Statements included in our Annual Report on Form 10-K for the year ended
December 31, 2008.





Our
subsidiary, First Northern Bank of Dixon (the “Bank”), is a California
state-chartered bank that derives most of its revenues from lending and deposit
taking in the Sacramento Valley region of Northern
California.  Interest rates, business conditions and customer
confidence all affect our ability to generate revenues.  In addition,
the regulatory environment and competition can challenge our ability to generate
those revenues.





Significant
results and developments during the first quarter 2009 include:





· Net
income of $0.45 million for the three months ended March 31, 2009, compared to
$0.06 million earned in the same fiscal period last year.





· Diluted
income per common share for the three months ended March 31, 2009 was $0.04,
compared to diluted income per common share of $0.01 reported in the same period
last year (per common share data has been adjusted for stock
dividends).





· Net
interest income decreased in the three months ended March 31, 2009 by $1.5
million, or 16.8%, to $7.2 million from $8.7 million in the same period last
year.  The decrease in net interest income was primarily attributable
to decreases in the average volume of interest-earning assets combined with a
decrease in interest yields, which was partially offset by a decrease in
interest costs.  Net interest margin decreased from 5.56% for the
three-month period ending March 31, 2008 to 4.89% for the same period ending
March 31, 2009.





· Provision
for loan losses of $1.1 million for the three-month period ended March 31, 2009
compared to a provision for loan losses of $3.7 million for the same period in
2008.  The decrease in the provision for loan losses during
the three-month period in 2009 was primarily due to reduced deterioration
in collateral values and repayment abilities of some of the Bank's customers
centered in the Company's residential construction and construction related
commercial segment of the loan portfolio affected by the repercussions of the
country's housing market crisis, as compared to the same period last
year.





· Total
assets at March 31, 2009 were $688.4 million, an increase of $7.8 million, or
1.15%, from levels at March 31, 2008.





· Total net
loans at March 31, 2009 (including loans held-for-sale) decreased $0.05 million,
or 0.01%, to $485.7 million compared to March 31, 2008.





· Total
investment securities at March 31, 2009 decreased $14.6 million, or 23.56%, to
$47.5 million compared to March 31, 2008.





· Total
deposits of $588.8 million at March 31, 2009, represented a decrease of $11.8
million, or 1.96%, compared to March 31, 2008.





· Issuance
of Series A Preferred Stock and warrant to the U.S. Treasury under the
Treasury’s Capital Purchase Program for proceeds to the Company before issuance
costs and expenses of $17.39 million.







21


SUMMARY





The
Company recorded net income of $453,000 for the three-month period ended March
31, 2009, representing an increase of $393,000 from net income of $60,000 for
the same period in 2008.








The
following table presents a summary of the results for the three-month periods
ended March 31, 2009 and 2008.





(in
      thousands, except per share and percentage amounts)Three
      months
                
                
                Three
      monthsended
                
                
                endedMarch
      31, 2009
                
                
                March
      31, 2008For
      the Period:Net
      Income
                
                $
                453
                
                
                $
                60Basic
      Earnings Per Common Share*
                
                $
                0.04
                
                
                $
                0.01Diluted
      Earnings Per Common Share*
                
                $
                0.04
                
                
                $
                0.01Return
      on Average Assets
                
                
                0.27
                %
                
                
                0.03
                %Net
      Income / Beginning Equity
                
                
                2.92
                %
                
                
                0.38
                %At
      Period End:Total
      Assets
                
                
                688,424
                
                
                
                680,589Total
      Loans, Net (including loans held-for-sale)
                
                
                485,742
                
                
                
                485,788Total
      Investment Securities
                
                
                47,522
                
                
                
                62,166Total
      Deposits
                
                
                588,796
                
                
                
                600,618Loan-To-Deposit
      Ratio
                
                
                82.5
                
                
                
                80.9*Adjusted
      for stock dividends










22


FIRST
NORTHERN COMMUNITY BANCORP


Distribution
of Average Statements of Condition and Analysis of Net Interest
Income


(in
thousands, except percentage amounts)





Three
      months ended
                                                    
                                                    
                                                    Three
      months endedMarch
      31, 2009
                                                    
                                                    
                                                    March
      31, 2008Average
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    Yield/
                                                    
                                                    
                                                    Average
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    Yield/Balance
                                                    
                                                    
                                                    Interest
                                                    
                                                    
                                                    Rate
                                                    
                                                    
                                                    Balance
                                                    
                                                    
                                                    Interest
                                                    
                                                    
                                                    RateAssetsInterest-earning
      assets:Loans
      (1)
                                                    
                                                    $
                                                    498,384
                                                    
                                                    
                                                    $
                                                    7,937
                                                    
                                                    
                                                    
                                                    6.46
                                                    %
                                                    
                                                    $
                                                    487,786
                                                    
                                                    
                                                    $
                                                    9,240
                                                    
                                                    
                                                    
                                                    7.60
                                                    %Federal
      funds sold
                                                    
                                                    
                                                    53,993
                                                    
                                                    
                                                    
                                                    19
                                                    
                                                    
                                                    
                                                    0.14
                                                    %
                                                    
                                                    
                                                    39,190
                                                    
                                                    
                                                    
                                                    290
                                                    
                                                    
                                                    
                                                    2.97
                                                    %Interest
      bearing due from banks
                                                    
                                                    
                                                    2,501
                                                    
                                                    
                                                    
                                                    31
                                                    
                                                    
                                                    
                                                    5.03
                                                    %
                                                    
                                                    
                                                    22,808
                                                    
                                                    
                                                    
                                                    268
                                                    
                                                    
                                                    
                                                    4.71
                                                    %Investment
      securities, taxable
                                                    
                                                    
                                                    17,191
                                                    
                                                    
                                                    
                                                    194
                                                    
                                                    
                                                    
                                                    4.58
                                                    %
                                                    
                                                    
                                                    40,669
                                                    
                                                    
                                                    
                                                    498
                                                    
                                                    
                                                    
                                                    4.91
                                                    %Investment
      securities, non-taxable  (2)
                                                    
                                                    
                                                    25,013
                                                    
                                                    
                                                    
                                                    262
                                                    
                                                    
                                                    
                                                    4.25
                                                    %
                                                    
                                                    
                                                    34,332
                                                    
                                                    
                                                    
                                                    358
                                                    
                                                    
                                                    
                                                    4.18
                                                    %Other
      interest earning assets
                                                    
                                                    
                                                    2,311
                                                    
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    2,200
                                                    
                                                    
                                                    
                                                    29
                                                    
                                                    
                                                    
                                                    5.29
                                                    %Total
      interest-earning assets
                                                    
                                                    
                                                    599,393
                                                    
                                                    
                                                    
                                                    8,443
                                                    
                                                    
                                                    
                                                    5.71
                                                    %
                                                    
                                                    
                                                    626,985
                                                    
                                                    
                                                    
                                                    10,683
                                                    
                                                    
                                                    
                                                    6.83
                                                    %Non-interest-earning
      assets:Cash
      and due from banks
                                                    
                                                    
                                                    39,181
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    25,140Premises
      and equipment, net
                                                    
                                                    
                                                    8,366
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    7,961Other
      real estate owned
                                                    
                                                    
                                                    4,339
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    1,042Accrued
      interest receivable and other assets
                                                    
                                                    
                                                    26,707
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    24,895Total
      average assets
                                                    
                                                    
                                                    677,986
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    686,023Liabilities
      and Stockholders’ Equity:Interest-bearing
      liabilities:Interest-bearing
      transaction deposits
                                                    
                                                    
                                                    124,093
                                                    
                                                    
                                                    
                                                    176
                                                    
                                                    
                                                    
                                                    0.58
                                                    %
                                                    
                                                    
                                                    130,753
                                                    
                                                    
                                                    
                                                    324
                                                    
                                                    
                                                    
                                                    0.99
                                                    %Savings
      and MMDA’s
                                                    
                                                    
                                                    163,404
                                                    
                                                    
                                                    
                                                    283
                                                    
                                                    
                                                    
                                                    0.70
                                                    %
                                                    
                                                    
                                                    178,334
                                                    
                                                    
                                                    
                                                    568
                                                    
                                                    
                                                    
                                                    1.28
                                                    %Time,
      under $100,000
                                                    
                                                    
                                                    67,080
                                                    
                                                    
                                                    
                                                    267
                                                    
                                                    
                                                    
                                                    1.61
                                                    %
                                                    
                                                    
                                                    44,809
                                                    
                                                    
                                                    
                                                    333
                                                    
                                                    
                                                    
                                                    2.98
                                                    %Time,
      $100,000 and over
                                                    
                                                    
                                                    62,750
                                                    
                                                    
                                                    
                                                    336
                                                    
                                                    
                                                    
                                                    2.17
                                                    %
                                                    
                                                    
                                                    70,568
                                                    
                                                    
                                                    
                                                    687
                                                    
                                                    
                                                    
                                                    3.90
                                                    %FHLB
      advances and other borrowings
                                                    
                                                    
                                                    17,344
                                                    
                                                    
                                                    
                                                    158
                                                    
                                                    
                                                    
                                                    3.69
                                                    %
                                                    
                                                    
                                                    10,393
                                                    
                                                    
                                                    
                                                    86
                                                    
                                                    
                                                    
                                                    3.32
                                                    %Total
      interest-bearing liabilities
                                                    
                                                    
                                                    434,671
                                                    
                                                    
                                                    
                                                    1,220
                                                    
                                                    
                                                    
                                                    1.14
                                                    %
                                                    
                                                    
                                                    434,857
                                                    
                                                    
                                                    
                                                    1,998
                                                    
                                                    
                                                    
                                                    1.84
                                                    %Non-interest-bearing
      liabilities:Non-interest-bearing
      demand deposits
                                                    
                                                    
                                                    174,520
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    179,420Accrued
      interest payable and other liabilities
                                                    
                                                    
                                                    5,931
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    6,444Total
      liabilities
                                                    
                                                    
                                                    615,122
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    620,721Total
      stockholders’ equity
                                                    
                                                    
                                                    62,864
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    65,302Total
      average liabilities and stockholders’ equity
                                                    
                                                    $
                                                    677,986
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    $
                                                    686,023Net
      interest income and net interest margin (3)
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    $
                                                    7,223
                                                    
                                                    
                                                    
                                                    4.89
                                                    %
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    $
                                                    8,685
                                                    
                                                    
                                                    
                                                    5.56
                                                    %1. Average
      balances for loans include loans held-for-sale and non-accrual loans and
      are net of the allowance for loan losses, but non-accrued interest thereon
      is excluded.  Loan interest income includes loan fees of
      approximately $490 and $713 for the three months ended March 31, 2009 and
      2008, respectively.2. Interest
      income and yields on tax-exempt securities are not presented on a taxable
      equivalent basis.3. Net
      interest margin is computed by dividing net interest income by total
      average interest-earning assets.





23


CHANGES
IN FINANCIAL CONDITION





The
assets of the Company set forth in the Unaudited Condensed Consolidated Balance
Sheets reflect a $11,142,000 increase in cash and due from banks, a $36,850,000
increase in Federal funds sold, a $5,416,000 increase in investment securities
available-for-sale, a $36,385,000 decrease in net loans held-for-investment, a
$2,967,000 increase in loans held-for-sale, a $711,000 decrease in other real
estate owned and a $1,744,000 decrease in accrued interest receivable and other
assets from December 31, 2008 to March 31, 2009.  The increase in cash
and due from banks was largely the result of an increase in non-interest bearing
due from banks accounts.  The increase in Federal funds sold was due,
in large part, to a decrease in net loans held-for-investment, and an increase
in deposits, which was partially offset by an increase in investment securities
available-for-sale.  The increase in investment securities
available-for-sale was primarily the result of purchases of agency mortgage-back
securities and was moderately offset by a decrease in agency
bonds.  Management evaluated the unrealized loss associated with the
investment securities available-for-sale and no decline was considered “other
than temporary” at March 31, 2009.  Due to the fact the Company has
the ability and intent to hold these investments until a market price recovery
or maturity, these investments are not considered other-than-temporarily
impaired.  The decrease in loans held-for-investment was in large part
due to decreases in the following loan categories: commercial and industrial;
agricultural; equipment; true equipment leases; real estate commercial and
construction and real estate SBA (Small Business Administration), which were
partially offset by increases in home equity loans and
overdrafts.  The increase in loans held-for-sale was in real estate
loans and was due, for the most part, to an increase in the origination of
loans.  The Company originated approximately $34,359,000 in
residential mortgage loans during the first three months of 2009, which was
offset by approximately $31,392,000 in loan sales during this
period.  The decrease in other real estate owned was due to a decline
in the value of other real estate owned.  The decrease in accrued
interest receivable and other assets was mainly due to decreases in suspense
items, which was partially offset by increases in the cash surrender value of
bank owned life insurance.





The
liabilities of the Company set forth in the Unaudited Condensed Consolidated
Balance Sheets reflect an increase in total deposits of $4,078,000 at March 31,
2009 compared to December 31, 2008.  The increase in deposits was due
to increases the following deposit accounts: savings; money market;
interest-bearing transaction and time deposits, which was partially offset by a
decrease in demand deposit accounts.  The primary reason for the
increase in deposits was due to the ongoing economic impact of the deterioration
of the stock market and as a result a flight to federally insured deposit
accounts has ensued.   The decrease in demand deposit accounts is
due in large part to impact of the slowing real estate activity in the
communities served by the Bank.  Since the peak in the real estate
market, deposits in the real estate related business accounts show consistent
reduction in average and end of period balances while the number of customers
has remained stable.  Federal Home Loan Bank advances (“FHLB
advances”) and other borrowings decreased $4,278,000 for the three months ended
March 31, 2009 compared to the year ended December 31, 2008, due to a decrease
in FHLB advances.










24


CHANGES
IN RESULTS OF OPERATIONS





Interest
Income





The
Federal Open Market Committee decreased the Federal Funds rate by approximately
213 basis points during the twelve-month period ended March 31,
2009.





Interest
income on loans for the three-month period ended March 31, 2009 was down 14.1%
from the same period in 2008, decreasing from $9,240,000 to
$7,937,000.  The decrease in interest income on loans for the
three-month period ended as compared to the same period a year ago was primarily
due to a 114 basis point decrease in loan yields, which was partially offset by
an increase in average loans.





Interest
income on investment securities available-for-sale for the three-month period
ended March 31, 2009 was down 46.7% from the same period in 2008, decreasing
from $856,000 to $456,000.  The decrease in interest income on
investment securities for the three-month period ended March 31, 2009 as
compared to the same period a year ago was primarily due to a decrease in
average investment securities combined with a 25 basis point decrease in
investment securities yields.





Interest
income on Federal Funds sold for the three-month period ended March 31, 2009 was
down 93.5% from the same period in 2008, decreasing from $290,000 to
$19,000.  The decrease for the three-month period ended March 31, 2009
as compared to the same period a year ago was primarily due to a 283 basis point
decrease in Federal Funds yields, which was partially offset by an increase in
average Federal Funds sold.





Interest
income on interest-bearing due from banks for the three-month period ended March
31, 2009 was down 88.4% from the same period in 2008, decreasing from $268,000
to $31,000.  The decrease in interest income on interest-bearing due
from banks for the three-month period ended March 31, 2009 as compared to the
same period a year ago was due to a decrease in average interest-bearing due
from banks, which was partially offset by a 32 basis point increase in interest
yields.





Interest
Expense





The
decrease in general market interest rates decreased the Company’s cost of funds
in the first three months of 2009 compared to the same period a year
ago.





Interest
expense on deposits and other borrowings for the three-month period ended March
31, 2009 was down 38.9% over the same period in 2008 from $1,998,000 to
$1,220,000.  The decrease in interest expense during the three-month
period ended March 31, 2009 was primarily due to a 70 basis point decrease in
the Company’s average cost of funds.




25


Provision for Loan
Losses





There was
a provision for loan losses of $1,106,000 for three-month period ended March 31,
2009 compared to a provision for loan losses of $3,659,000 for the same period
in 2008.  The allowance for loan losses was approximately $14,463,000,
or 2.92% of total loans, at March 31, 2009 compared to $14,435,000, or 2.71% of
total loans, at December 31, 2008.  The allowance for loan losses is
maintained at a level considered adequate by management to provide for probable
loan losses inherent in the loan portfolio.





The
decrease in the provision for loan losses during the three-month period in 2009
was primarily due to reduced deterioration in collateral values and repayment
abilities of some of the Bank's customers centered in the Company's residential
construction and construction-related commercial segment of the loan
portfolio affected by the repercussions of the country's housing market
crisis.





Provision for Unfunded
Lending Commitment Losses





There was
no provision for unfunded lending commitment losses for the three-month period
ended March 31, 2009 compared to a recovery of provision of $41,000 for the same
period in 2008.





The
provision for unfunded lending commitment losses is included in non-interest
expense.





Other Operating
Income





Other
operating income was down 23.4% for the three-month period ended March 31, 2009
from the same period in 2008, decreasing from $2,272,000 to
$1,740,000.





This
decrease was primarily due to decreases in gains on available-for-sale
securities, service charges on deposit accounts, and investment brokerage
services income, which was partially offset by increases in gains on sales of
loans held-for-sale and loan servicing income.  There were no sales of
securities in the first quarter of 2009 and this was the reason for the decrease
in gains on available-for-sale securities as compared to the sale of securities
during the first quarter of 2008.  The decrease in service charges on
deposit accounts was due to a decrease in overdraft fees and service charges on
business checking accounts.  The decrease in investment brokerage
services income was due to a decrease in the demand for those
services.  The increase in gains on sales of loans held-for-sale was
due to increased sold loans as compared to the same period in
2008.  The increase in loan servicing income was due to an increase in
the booked income for the Company’s mortgage servicing asset.




26


Other Operating
Expenses





Total
other operating expenses was up 5.90% for the three-month period ended March 31,
2009 from the same period in 2008, increasing from $7,241,000 to
$7,668,000.





The
principal reasons for the increase in other operating expenses in the
three-month period ended March 31, 2009 were increases in the following:
occupancy and equipment expense; data processing; stationary and supplies; other
real estate owned expense and other miscellaneous operating expense, which were
partially offset by decreases in salaries and benefits, and
advertising.  The increase in occupancy and equipment expense was due
to increases in the following: rent expense; equipment maintenance; and solar
equipment rental, which was partially offset by decreases in other equipment
rental; and depreciation on furniture and equipment and computer
hardware.  The increase in data processing costs was due to increased
expenses associated with maintaining and monitoring the Company’s data
communications network and internet banking system.  The increase in
stationery and supplies was due to an increase in supply usage.  The
increase in other real estate owned expense was due to write-downs and
maintenance expenses related to OREO properties.  The decrease in
salaries and benefits was due, for the most part, to decreases in the
following:  profit sharing expenses due to decreased profits,
contingent sick-pay and vacation-pay; stock compensation expense; deferred loan
processing costs; and worker’s compensation expense, which were partially offset
by increases in merit salaries and; commissions paid.  The decrease in
advertising costs was due to a decrease in printed materials and related
costs.








The
following table sets forth other miscellaneous operating expenses by category
for the three-month periods ended March 31, 2009 and 2008.





(in
      thousands)Three
                
                
                Threemonths
                
                
                monthsended
                
                
                endedMarch
      31,
                
                
                March
      31,2009
                
                
                2008Other
      miscellaneous operating expensesRecovery
      of provision for unfunded lending commitments
                
                $
                —
                
                
                $
                (41
                )FDIC
      assessments
                
                
                216
                
                
                
                120Contributions
                
                
                19
                
                
                
                23Legal
      fees
                
                
                109
                
                
                
                69Accounting
      and audit fees
                
                
                124
                
                
                
                246Consulting
      fees
                
                
                52
                
                
                
                105Postage
      expense
                
                
                98
                
                
                
                65Telephone
      expense
                
                
                69
                
                
                
                64Public
      relations
                
                
                38
                
                
                
                104Training
      expense
                
                
                20
                
                
                
                61Loan
      origination expense
                
                
                260
                
                
                
                100Computer
      software depreciation
                
                
                53
                
                
                
                61Other
      miscellaneous expense
                
                
                457
                
                
                
                425Total
      other miscellaneous operating expenses
                
                $
                1,515
                
                
                $
                1,402







27


Income
Taxes





The
Company’s tax rate, the Company’s income or loss before taxes and the amount of
tax relief provided by non-taxable earnings primarily affect the Company’s
provision for income taxes.





In the
three months ended March 31, 2009, the Company’s benefit for income taxes
increased $261,000 from the same period last year, from a benefit of $3,000 to
benefit of $264,000.





The
increase in benefit for income taxes for all periods presented is primarily
attributable to the respective level of earnings combined with the interim
effective tax rate and the incidence of allowable deductions, in particular
non-taxable municipal bond income, tax credits generated from low-income housing
investments, solar tax credits, excludable interest income and, for California
franchise taxes, higher excludable interest income on loans within designated
enterprise zones.





Accounting for Uncertainty
in Income Taxes




The
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes,” on January 1, 2007.  As a result of the
implementation of FIN 48, the Company recognized an increase for unrecognized
tax benefits.  A reconciliation of the beginning and ending amount of
unrecognized tax benefits for the three months ended March 31, 2009 is as
follows:




(in
      thousands)Balance
      at January 1, 2009
                
                $
                122Additions
      for tax positions taken in the current period
                
                
                —Reductions
      for tax positions taken in the current period
                
                
                —Additions
      for tax positions taken in prior years
                
                
                —Reductions
      for tax positions taken in prior years
                
                
                —Decreases  related
      to settlements with taxing authorities
                
                
                —Decreases
      as a result of a lapse in statue of limitations
                
                
                —Balance
      at March 31, 2009
                
                $
                122




The
Company does not anticipate any significant increase or decrease in unrecognized
tax benefits during 2009.  If recognized, the entire amount of the
unrecognized tax benefits would affect the effective tax rate.





The
Company classifies interest and penalties as a component of the provision for
income taxes.  At March 31, 2009, unrecognized interest and penalties
were $27 thousand.  The tax years ended December 31, 2008, 2007, 2006
and 2005 remain subject to examination by the Internal Revenue
Service.  The tax years ended December 31, 2008, 2007, 2006, 2005, and
2004 remain subject to examination by the California Franchise Tax
Board.  The deductibility of these tax positions will be determined
through examination by the appropriate tax jurisdictions or the expiration of
the tax statute of limitations.





Off-Balance Sheet
Commitments





The
following table shows the distribution of the Company’s undisbursed loan
commitments at the dates indicated.





(in
      thousands)March
      31, 2009
                
                
                December
      31, 2008Undisbursed
      loan commitments
                
                $
                205,387
                
                
                $
                198,615Standby
      letters of credit
                
                
                5,042
                
                
                
                5,715$
                210,429
                
                
                $
                204,330









The
reserve for unfunded lending commitments amounted to $1,021,000 at March 31,
2009, which was unchanged from December 31, 2008.  The reserve for
unfunded lending commitments is included in other liabilities.





28


Asset
Quality





The
Company manages asset quality and credit risk by maintaining diversification in
its loan portfolio and through review processes that include analysis of credit
requests and ongoing examination of outstanding loans and delinquencies, with
particular attention to portfolio dynamics and loan mix.  The Company
strives to identify loans experiencing difficulty early enough to correct the
problems, to record charge-offs promptly based on realistic assessments of
current collateral values and to maintain an adequate allowance for loan losses
at all times.





It is
generally the Company’s policy to discontinue interest accruals once a loan is
past due for a period of 90 days as to interest or principal
payments.  When a loan is placed on non-accrual, interest accruals
cease and uncollected accrued interest is reversed and charged against current
income.  Payments received on non-accrual loans are applied against
principal.  A loan may only be restored to an accruing basis when it
again becomes well secured and in the process of collection or all past due
amounts have been collected.





Non-accrual
loans amounted to $17,244,000 at March 31, 2009 and were comprised of eight
commercial loans totaling $1,779,000, two agricultural loans totaling $177,000,
one consumer loan totaling $99,000, nine commercial real estate loans totaling
$7,844,000, eighteen residential construction loans totaling $6,874,000 and two
residential mortgage loans totaling $471,000.  At December 31, 2008,
non-accrual loans amounted to $13,545,000 and were comprised of six commercial
loans totaling $2,619,000, six commercial real estate loans totaling $4,184,000,
eleven residential construction loans totaling $6,309,000, one residential
mortgage loan totaling $334,000, and one consumer loan totaling
$99,000.  Non-accrual loans amounted to $18,623,000 at March 31, 2008
and were comprised of three commercial loans totaling $287,000, two agricultural
loans totaling $101,000, and twenty-eight real estate loans totaling
$18,235,000.





The
Company had loans restructured and in compliance with modified terms totaling
$2,145,000 at March 31, 2009.  The Company had no restructured loans
at March 31, 2008 and had loans restructured and in compliance with modified
terms totaling $2,682,000 at December 31, 2008.





Total
impaired loans at March 31, 2009, consisting of loans on non-accrual status,
totaled $17,244,000, the majority of the impaired loans were in management's
opinion adequately collateralized based on recently obtained appraised property
values or guaranteed by a governmental entity; for the unsecured portion of the
impaired loans, specific reserves amounting to $314,000 were allocated to these
loans.  See“Allowance for Loan Losses” below for additional
information.  No assurance can be given that the existing or any
additional collateral will be sufficient to secure full recovery of the
obligations owed under these loans.





The
Company had loans 90 days past due and still accruing totaling $2,511,000,
$348,000 and $713,000 at March 31, 2009 and 2008 and December 31, 2008,
respectively.





The
Company had loans restructured and in compliance with modified terms totaling
$2,145,000, -0- and 2,682,000 March 31, 2009 and 2008 and December 31, 2008,
respectively.





OREO is
made up of property that the Company has acquired by deed in lieu of foreclosure
or through foreclosure proceedings, and property that the Company does not hold
title to but is in actual control of, known as in-substance
foreclosure.  The estimated fair value of the property is determined
prior to transferring the balance to OREO.  The balance transferred to
OREO is the lesser of the estimated fair market value of the property, or the
book value of the loan, less estimated cost to sell.  A write-down may
be deemed necessary to bring the book value of the loan equal to the appraised
value.  Appraisals or loan officer evaluations are then done
periodically thereafter charging any additional write-downs to the appropriate
expense account.




OREO
amounted to $3,657,000, $1,215,000, and $4,368,000 for the periods ended March
31, 2009 and 2008, and December 31, 2008, respectively.  The decrease
in OREO at March 31, 2009 from the balance at December 31, 2008 was due, for the
most part, to write-downs of OREO properties.







29


Allowance for Loan
Losses





The
Company’s Allowance for Loan Losses is maintained at a level believed by
management to be adequate to provide for loan losses that can be reasonably
anticipated.  The allowance is increased by provisions charged to
operating expense and reduced by net charge-offs.  The Company makes
credit reviews of the loan portfolio and considers current economic conditions,
loan loss experience, and other factors in determining the adequacy of the
reserve balance.  The allowance for loan losses is based on estimates,
and actual losses may vary from current estimates.








The
following table summarizes the loan loss experience of the Company for the
three-month periods ended March 31, 2009 and 2008, and for the year ended
December 31, 2008.





Analysis
      of the Allowance for Loan Losses(Amounts
      in thousands, except percentage amounts)Three
      months ended
                  March
      31,
                
                
                Year
      ended
                  December
      31,2009
                
                
                2008
                
                
                2008Balance
      at beginning of period
                
                $
                14,435
                
                
                $
                10,876
                
                
                $
                10,876Provision
      for loan losses
                
                
                1,106
                
                
                
                3,659
                
                
                
                16,164Loans
      charged-off:Commercial
                
                
                (251
                )
                
                
                (184
                )
                
                
                (2,224
                )Agriculture
                
                
                —
                
                
                
                —
                
                
                
                (88
                )Real
      estate mortgage
                
                
                —
                
                
                
                (82
                )
                
                
                (299
                )Real
      estate construction
                
                
                (1,235
                )
                
                
                (2,696
                )
                
                
                (10,265
                )Consumer
      loans to individuals
                
                
                (84
                )
                
                
                (104
                )
                
                
                (488
                )Total
      charged-off
                
                
                (1,570
                )
                
                
                (3,066
                )
                
                
                (13,324
                )Recoveries:Commercial
                
                
                6
                
                
                
                4
                
                
                
                153Agriculture
                
                
                —
                
                
                
                50
                
                
                
                56Real
      estate mortgage
                
                
                —
                
                
                
                32
                
                
                
                32Real
      estate construction
                
                
                425
                
                
                
                —
                
                
                
                159Consumer
      loans to individuals
                
                
                61
                
                
                
                92
                
                
                
                319Total
      recoveries
                
                
                492
                
                
                
                178
                
                
                
                719Net
      charge-offs
                
                
                (1,078
                )
                
                
                (2,888
                )
                
                
                (12,605
                )Balance
      at end of period
                
                $
                14,463
                
                
                $
                11,647
                
                
                $
                14,435Ratio
      of net charge-offsTo
      average loans outstanding during the period
                
                
                (0.21
                %)
                
                
                (0.58
                %)
                
                
                (2.33
                %)Allowance
      for loan lossesTo
      total loans at the end of the period
                
                
                2.92
                %
                
                
                2.34
                %
                
                
                2.71
                %To
      non-performing loans at the end of the period
                
                
                73.21
                %
                
                
                61.39
                %
                
                
                101.24
                %





Non-performing
loans totaled $19,755,000, $18,971,000, and $14,258,000 at March 31, 2009 and
2008, and December 31, 2008, respectively.





30


Deposits





Deposits
are one of the Company’s primary sources of funds.  At March 31, 2009, the
Company had the following deposit mix: 28.1% in savings and MMDA deposits, 22.9%
in time deposits, 21.1% in interest-bearing transaction deposits and 27.9% in
non-interest-bearing transaction deposits.  Non-interest-bearing
transaction deposits enhance the Company’s net interest income by lowering its
cost of funds.





The
Company obtains deposits primarily from the communities it serves.  No
material portion of its deposits has been obtained from or is dependent on any
one person or industry.  The Company accepts deposits in excess of $100,000
from customers.  These deposits are priced to remain
competitive.





Maturities
of time certificates of deposits of $100,000 or more outstanding at March 31,
2009 and December 31, 2008 are summarized as follows:




(in
      thousands)March
      31,
                    2009
                  
                  
                  December
      31, 2008Three
      months or less
                  
                  $
                  25,325
                  
                  
                  $
                  27,753Over
      three to twelve months
                  
                  
                  43,045
                  
                  
                  
                  26,595Over
      twelve months
                  
                  
                  9,984
                  
                  
                  
                  5,248Total
                  
                  $
                  78,354
                  
                  
                  $
                  59,596




The
increase in time certificates of deposit (CD's) of $100,000 or more is primarily
attributable to the lack of investor confidence in the stock
market.








Liquidity and Capital
Resources





In order
to serve our market area, the Company must maintain adequate liquidity and
adequate capital.  Liquidity is measured by various ratios with the
most common being the ratio of net loans to deposits (including loans
held-for-sale).  This ratio was 82.5% on March 31, 2009.  In
addition, on March 31, 2009, the Company had the following short-term
investments:  $77,710,000 in Federal funds sold; $2,500,000 in
Certificate of Deposit Account Registry Service (“CDARS”); $2,791,000 in
securities due within one year; and $3,862,000 in securities due in one to five
years.





To meet
unanticipated funding requirements, the Company maintains short-term unsecured
lines of credit with other banks totaling $15,000,000 at March 31, 2009;
additionally the Company has a line of credit with the Federal Home Loan Bank,
on which the current borrowing capacity is $124,316,000.





The
Company’s primary source of liquidity on a stand-alone basis is dividends from
the Bank.  Dividends from the Bank are subject to regulatory
restrictions.








As of
March 31, 2009, the Bank’s capital ratios exceeded applicable regulatory
requirements.  The following table presents the capital ratios for the
Bank, compared to the standards for well-capitalized depository institutions, as
of March 31, 2009.





(amounts
      in thousands except percentage amounts)Actual
                
                
                Adequately
                
                
                Well
      CapitalizedCapitalized
                
                
                RatioCapital
                
                
                Ratio
                
                
                Ratio
                
                
                RequirementLeverage
                
                $
                74,855
                
                
                
                11.07
                %
                
                
                4.0
                %
                
                
                5.0
                %Tier
      1 Risk-Based
                
                $
                74,855
                
                
                
                13.63
                %
                
                
                4.0
                %
                
                
                6.0
                %Total
      Risk-Based
                
                $
                81,826
                
                
                
                14.90
                %
                
                
                8.0
                %
                
                
                10.0
                %











31


CPP
Participation








On March
13, 2009 the Company received $17,390,000 from the U.S. Treasury in exchange for
17,390 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par
value $0.01 per share (Preferred Shares) and a warrant to purchase 352,977
shares of common stock at $7.39 per share under the Capital Purchase Program
(CPP).  The Company used the proceeds from this sale, net of issuance
costs and expenses, for general working capital.  The Preferred Shares
qualify as Tier 1 capital for regulatory purposes and rank senior to common
stock and bear a cumulative dividend rate of five percent per annum for the
first five years they are outstanding and a rate of nine percent per annum
thereafter.  The Preferred Shares have no maturity date and rank
senior to the Common Stock with respect to the payment of dividends and
distributions and amounts payable upon liquidation, dissolution and winding up
of the Company. Subject to the approval of the Board of Governors of the Federal
Reserve System, the Preferred Shares are redeemable at the option of the Company
at any time at 100% of their liquidation preference.  The Board of
Directors and management believe it was prudent to participate in the CPP
because (i) the cost of capital under this program may be significantly lower
than the cost of capital otherwise available to the Company at this time, and
(ii) despite being well-capitalized, additional capital under this program
provides the Company and First Northern Bank further flexibility to meet future
capital needs that may arise in the current uncertain economic
environment.





The U.S. Treasury may not transfer a
portion or portions of the warrant with respect to, and/or exercise the warrant
for more than one-half of, the 352,977 shares of common stock issuable upon
exercise of the warrant, in the aggregate, until the earlier of (i) the date on
which the Company has redeemed the Preferred Shares and (ii) December 31, 2009.
In the event the Company redeems the Preferred Shares pursuant to the terms of
the CPP prior to December 31, 2009, the number of the shares of common stock
underlying the portion of the warrant then held by the U.S. Treasury will be
reduced by one-half of the shares of common stock originally covered by the
warrant.





The Purchase Agreement pursuant to
which the Preferred Shares and the warrant were sold contains limitations on the
payment of dividends on Common Stock, including with respect to the payment of
cash dividends (but does not affect our ability to declare and pay stock
dividends) and on the Company’s ability to repurchase its common stock, and
subjects the Company to certain of the executive compensation limitations
included in Emergency Economic Stabilization Act of 2008.  As a
condition to the closing of the transaction, each of Owen J. Onsum, Louise A.
Walker, Patrick S. Day and Robert M. Walker, the Company’s Senior Executive
Officers (as defined in the Purchase Agreement), executed a voluntary waiver of
any claim against the U.S. Treasury or the Company for any changes to such
Senior Executive Officer’s compensation or benefits that are required to comply
with the regulations issued by the U.S. Treasury under the CPP as published in
the Federal Register on October 20, 2008 and acknowledging that the regulation
may require modification of the compensation, bonus, incentive and other benefit
plans, arrangements and policies and agreements (including so-called “golden
parachute” agreements) as they relate to the period the U.S. Treasury holds any
equity or debt securities of the Company acquired through the TARP Capital
Purchase Program.








ITEM
3.


QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





The
Company believes that there have been no material changes in the quantitative
and qualitative disclosures about market risk as of March 31, 2009, from those
presented in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, which are incorporated by reference herein.







32


ITEM
4.


CONTROLS
AND PROCEDURES





Our Chief
Executive Officer (principal executive officer) and Chief Financial Officer
(principal financial officer) have concluded that the design and operation of
our disclosure controls and procedures are effective as of March 31,
2009.  This conclusion is based on an evaluation conducted under the
supervision and with the participation of management.  Disclosure
controls and procedures are those controls and procedures which ensure that
information required to be disclosed in this filing is accumulated and
communicated to management and is recorded, processed, summarized, and reported
in a timely manner and in accordance with Securities and Exchange Commission
rules and regulations.





During
the quarter ended March 31, 2009, there were no changes in our internal controls
over financial reporting that materially affected, or are reasonably likely to
materially affect, our internal controls over financial reporting.








PART
II - OTHER INFORMATION





ITEM
1A.





RISK
FACTORS







In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, “Item 1A.  Risk Factors” in
the Annual Report on Form 10-K for the year ended December 31, 2008, which could
materially affect our business, financial condition or future results and the
following information.




The
capital and credit markets have been experiencing significant volatility and
disruption for more than 12 months.  In some cases, the markets have
produced downward pressure on stock prices and credit availability for certain
issuers without regard to those issuers’ underlying financial
strength.  If current levels of market disruption and volatility
continue or worsen, there can be no assurance that we will not experience an
adverse effect, which may be material, on our ability to access capital and on
our business, financial condition and results of operations.  As a
result of these volatile and disrupted credit markets, our customers’ ability to
raise capital and refinance maturing obligations could be adversely affected,
and this could result in a further adverse impact on our business, financial
condition and results of operations as contributing to a widening of credit
spreads and a general lack of liquidity in the marketplace, all of which can
result in a further adverse impact on our business, financial condition and
results of operations.





The
U.S. and global economies have experienced a slowing of economic growth,
unprecedented volatility in the financial markets, and significant deterioration
in sectors of the U.S. residential real estate markets, all of which present
challenges for the banking and financial services industry





Commencing
in 2007 and continuing throughout 2009, certain adverse financial developments
have impacted the U.S. and global economies and financial markets and present
challenges for the banking and financial services industry and for First
Northern.  These developments include a general slowing of economic
growth both globally and in the U.S. which has prompted the Congress to adopt an
economic stimulus bill which President Bush signed into law on February 13,
2008, and which prompted the Federal Reserve Board to decrease its discount rate
and the federal funds rate numerous times in the first three months of
2008.  In addition, financial and credit conditions in the domestic
residential real estate markets have deteriorated significantly, particularly in
the subprime sector.  These conditions in turn have led to significant
deterioration in certain financial markets, particularly the markets for
subprime residential mortgage-backed securities and for collateralized debt
obligations backed by residential mortgage-backed securities.  On July
30, 2008, President Bush signed into law a housing bill which grants the U.S.
Treasury Department broad authority to safeguard Fannie Mae and Freddie Mac and
authorizes the Federal Housing Administration to insure up to $300 billion in
refinanced mortgages.  In the third quarter of 2008, the volatility
and disruption in the capital and credit markets reached unprecedented
levels.  On October 3, 2008, President Bush signed into law the
Emergency Economic Stabilization Act of 2008 (EESA) in response to the recent
financial crises affecting the banking system and financial
markets.  EESA is intended as a response to the financial crises
affecting the banking system and financial markets.  Under EESA, the
U.S. Treasury will have the authority to, among other things, purchase up to
$700 billion of mortgages, mortgage-backed securities and certain other
financial instruments from financial institutions for the purpose of stabilizing
and providing liquidity to the U.S. financial markets. Further, pursuant to the
EESA, on October 14, 2008, the U.S. Treasury announced a voluntary Capital
Purchase Program pursuant to which the U.S. Treasury will purchase up to $250
billion in senior preferred stock of qualifying U.S. financial
institutions.  On October 13, 2008, the U.S. Treasury announced that
it had agreed, under the authority of the new law, with the nine largest banks
in the U.S. to purchase an aggregate of $125 billion in senior preferred stock
in such banks and that it would allocate an additional $125 billion to the
purchase of senior preferred stock in other banking institutions.  The
purpose of the program is to provide substantial new capital to the U.S. banking
industry.  It cannot be predicted whether this recent legislation will
result in significant improvement in financial and economic conditions affecting
the banking industry.  If, notwithstanding the federal government’s
recent fiscal and monetary measures, the U.S. economy were to remain in a
recessionary condition for an extended period, this would present additional
significant challenges for the U.S. banking and financial services industry and
for First Northern.  While it is difficult to predict how long these
conditions will exist and which markets and businesses of our company may be
affected, these factors could continue to present risks for some time for the
industry and our company.





33




On
February 17, 2009, President Obama signed into law the American Recovery and
Reinvestment Act of 2009 (ARRA) in an attempt to reverse the U.S. economic
downturn. A large portion of the ARRA is devoted to new federal spending
programs designed to increase economic output, decrease unemployment and invest
in national infrastructure. Of the $787 billion in federal spending appropriated
by the ARRA, $286 billion will be devoted to tax cuts, $120 billion will be used
to fund infrastructure projects and $381 billion will be allocated for social
programs and other spending. A substantial portion of the appropriation funds
will go directly to the states, which was a key element in the budget approved
by the California Legislature and signed by Governor Schwarzenegger on February
20, 2009.





On March
31, 2009, the U.S. Treasury and the Federal Deposit Insurance Corporation (FDIC)
announced the Public-Private Investment Program (PPIP) that seeks to eliminate
“toxic” real estate-backed assets from the balance sheets of United States
financial institutions through partnerships with private investors in an attempt
to restore the normal functioning of secondary markets for securities backed by
such assets, encourage the extension of credit and restore investor confidence
in financial institutions. The PPIP will create Public-Private Investment Funds
that will use private equity investment, equity investment from the U.S.
Treasury, U.S. Treasury debt financing, and FDIC-guaranteed debt to purchase
“toxic” real estate assets and securities backed by such assets. The U.S.
Treasury has committed to furnish up to $100 billion of capital for the
PPIP.





It cannot
be predicted whether this recent legislation will result in significant
improvement in financial and economic conditions affecting the banking
industry.  If, notwithstanding the federal government’s recent fiscal
and monetary measures, the U.S. economy were to remain in a recessionary
condition for an extended period, this would present additional significant
challenges for the U.S. banking and financial services industry and for First
Northern.  While it is difficult to predict how long these conditions
will exist and which markets and businesses of our company may be affected,
these factors could continue to present risks for some time for the industry and
our company.





Adverse
economic factors affecting certain industries we serve could adversely affect
our business





We are
subject to certain industry-specific economic factors.  For example, a
portion of our total loan portfolio is related to residential real estate,
especially in California.  Increases in residential mortgage loan
interest rates could have an adverse effect on our operations by depressing new
mortgage loan originations, which in turn could negatively impact our title and
escrow deposit levels.  Additionally, a further downturn in the
residential real estate and housing industries in California could have an
adverse effect on our operations and the quality of our real estate and
construction loan portfolio.  Although we do not engage in subprime or
negative amortization lending, effects of recent subprime market challenges,
combined with the ongoing deterioration in the U.S. and California real estate
markets, could result in further price reductions in single family home prices
and a lack of liquidity in refinancing markets.  These factors could
adversely impact the quality of our residential construction, residential
mortgage and construction related commercial portfolios in various ways,
including by decreasing the value of the collateral for our
loans.  These factors could also negatively affect the economy in
general and thereby our overall loan portfolio.





We
provide financing to, and receive deposits from, businesses in a number of other
industries that may be particularly vulnerable to industry-specific economic
factors, including the home building, commercial real estate, retail,
agricultural, industrial, and commercial industries.  The home
building industry in California has been especially adversely impacted by the
deterioration in residential real estate markets, which has lead us to take
additional provisions and charge-offs against credit losses in this
portfolio.  Continued increases in fuel prices and energy costs could
adversely affect businesses in several of these
industries.  Industry-specific risks are beyond our control and could
adversely affect our portfolio of loans, potentially resulting in an increase in
non-performing loans or charge-offs and a slowing of growth or reduction in our
loan portfolio.




34




Because
Of Our Participation In The Capital Purchase Program, We Are Subject To Several
Restrictions Including Restrictions On Our Ability To Declare Or Pay Dividends
And Repurchase Our Shares As Well As Restrictions On Compensation Paid To Our
Executive Officers.





Pursuant
to the terms of the CPP, our ability to declare or pay dividends on any of our
shares is limited.  Specifically, we are unable to declare dividend
payments on common shares, junior preferred shares or pari passu preferred
shares if we are in arrears on the payment of dividends on the Preferred
Shares.  Further, we are not permitted to increase dividends on our
common shares above the amount of the last quarterly cash dividend per share
declared prior to March 13, 2009 without the U.S. Treasury’s approval (but
does not affect our ability to declare and pay stock dividends) unless all of
the Preferred Shares have been redeemed or transferred by the U.S. Treasury
to unaffiliated third parties.  In addition, our ability to repurchase our
shares is restricted.  The consent of the U.S. Treasury generally
is required for us to make any stock repurchase (other than in connection with
the administration of any employee benefit plan in the ordinary course of
business and consistent with past practice), unless all of the Preferred Shares
have been redeemed or transferred by the U.S. Treasury to unaffiliated
third parties.  Further, common shares, junior preferred shares
or  pari passu  preferred shares may not be repurchased if
we are in arrears on the payment of Preferred Share
dividends.  Finally, the terms of the UST Agreement allow
the U.S. Treasury to impose additional restrictions, including those on
dividends and including unilateral amendments required to comply with changes in
applicable federal law.





Pursuant
to the terms of the CPP, we are required to adopt the U.S. Treasury’s
current standards for executive compensation and corporate governance for the
period during which the U.S. Treasury holds the equity securities issued
pursuant to the CPP, including the common shares that may be issued upon
exercise of the warrant.  These standards generally apply to our Chief
Executive Officer, Chief Financial Officer and the three next most highly
compensated Senior Executive Officers.  The standards include:
(i) ensuring that incentive compensation plans and arrangements for Senior
Executive Officers do not encourage unnecessary and excessive risks that
threaten our value; (ii) required clawback of any bonus or incentive
compensation paid (or under a legally binding obligation to be paid) to a Senior
Executive Officer based on materially inaccurate financial statements or other
materially inaccurate performance metric criteria; (iii) prohibition on
making “golden parachute payments” to Senior Executive Officers; and
(iv) agreement not to claim a deduction, for federal income tax purposes,
for compensation paid to any of the Senior Executive Officers in excess of
$500,000 per year.





The
adoption of ARRA on February 17, 2009 imposed certain new executive
compensation and corporate expenditure limits on all current and future CPP
participants, including the Company, until the institution has repaid
the U.S. Treasury.  The new standards include (but are not
limited to): (i) prohibitions on bonuses, retention awards and other
incentive compensation, other than restricted stock grants which do not fully
vest during the CPP period with a value not greater than one-third of an
employee’s total annual compensation; (ii) prohibitions on payments for
departure from a company for any reason, except for payments for services
performed or benefits accrued; (iii) an expanded clawback of bonuses,
retention awards, and incentive compensation if payment is based on materially
inaccurate statements of earnings, revenues, gains or other criteria;
(iv) prohibitions on compensation plans that encourage manipulation of
reported earnings; (v) retroactive review of bonuses, retention awards and
other compensation previously provided by CPP recipients if found by
the U.S. Treasury to be inconsistent with the purposes of CPP or otherwise
contrary to public interest; (vi) required establishment of a company-wide
policy regarding “excessive or luxury expenditures,” and; (vii) inclusion
in a participant’s proxy statements for annual shareholder meetings of a
nonbinding “Say on Pay” shareholder vote on the compensation of
executives.





If
we are unable to redeem the Series A preferred shares prior to March 13, 2014,
the cost of this capital to us will increase substantially on that date, from
5.0% per annum to 9.0% per annum.





Depending
on our financial condition at the time, this increase in the annual dividend
rate on the Series A preferred shares could have a material negative effect on
our earnings.




The risk
factors in Part I, Item 1A of our Annual Report on Form 10-K for the year ended
December 31, 2008, as modified by the additional information above, are
incorporated herein by reference.  The risks described above and in
our Annual Report on Form 10-K are not the only risks facing the
Company.  Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect
our business, financial condition, and/or operating results.




35




ITEM
2.





UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





Unregistered
Sales of Equity Securities





On March
13, 2009 we issued 17,390 Preferred Shares and a warrant to purchase 352,977
shares of our common stock to the U.S. Treasury in a private offering exempt
from registration under Section 4(2) of the Securities Act of 1933. See
"Managements Discussion and Analysis of Financial Condition and Results of
Operations--CPP Participation" for more information.








Repurchases
of Equity Securities





On
September 22, 2007, the Company approved a new stock repurchase program
effective September 22, 2007 to replace the Company’s previous stock repurchase
plan that commenced May 1, 2006.  The new stock repurchase program,
which will remain in effect until September 21, 2009, allows repurchases by the
Company in an aggregate of up to 4% of the Company’s outstanding shares of
common stock over each rolling twelve-month period.





The
consent of the U.S. Treasury generally is required for us to make any stock
repurchase (other than in connection with the administration of any employee
benefit plan in the ordinary course of business and consistent with past
practice), unless all of the Preferred Shares have been redeemed or transferred
by the U.S. Treasury to unaffiliated third parties.  Further, our
common shares may not be repurchased if we are in arrears on the payment of
Preferred Share dividends.










The
Company made no purchases of its common stock during the quarter ended March 31,
2009:







Period
              
              Total
      number of shares
                purchased
              
              Average
      price
                paid
      per share
              
              Number
      of shares purchased as part of publicly announced
                plans
      or programs
              
              Maximum
      number of shares that may yet be purchased under the plans or
      programsJanuary
      1 – January 31, 2009
              
              —
              
              —
              
              —
              
              255,026February
      1 – February 28, 2009
              
              —
              
              —
              
              —
              
              305,022March
      1 – March 31, 2009
              
              —
              
              —
              
              —
              
              357,732Total
              
              —
              
              —
              
              —
              
              357,732





A 4%
stock dividend was declared on January 22, 2009 with a record date of February
27, 2009 and is reflected in the number of shares purchased and average prices
paid per share.










36





ITEM
4.





SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS





(a)
            The
      Company held a special meeting of shareholders (the “Special Meeting”) on
      February 26, 2009.





(b)
            Proxies
      for the Special Meeting were solicited pursuant to the rules set forth in
      Regulation 14A promulgated under the Securities Exchange Act of
      1934.





(c)
            The
      votes of the shareholders received and tabulated at the meeting were as
      follows:





(1)
            Proposal 1.  Proposal
      to amend Article 4 of our Articles of Incorporation to authorize the
      issuance of up to 18,500 shares of preferred stock, which First
      Northern  Community Bancorp may only use to participate in the
      CPP.


For
              4,940,009Against
              311,937Abstain
              110,776Broker-non votes
              -0-







(2)
            Proposal 2.  Proposal
      to amend Article 5 of First Northern Community Bancorp ‘s Articles of
      Incorporation to create an exception to the preemptive rights provided
      to  our shareholders with respect to the common stock
      subject to the warrants that would be issued to the Treasury pursuant to
      the CPP.


For
              4,960,010Against
              291,378Abstain
              111,334Broker-non votes
              -0-





(3)
            Proposal 3.  Proposal
      to approve the adjournment or postponement of the Special Meeting, if
      necessary, to solicit additional proxies, in the event (a) there are not
        sufficient votes at the time of the Special Meeting to
      adopt Proposals 1 or 2, or (b) a quorum is not present at the time of the
      Special Meeting.


For
              6,099,865Against
              324,370Abstain
              127,479Broker-non votes
              -0-







(4)
            Proposal 4.  In
      their discretion, the proxy holders are authorized to vote upon such other
      business as may properly come before the
  meeting.


For
              6,056,785Against
              370,913Abstain
              124,016Broker-non votes
              -0-








37


ITEM
6.





EXHIBITS





Exhibit
              Number
            Exhibit3.1
            Amended
      Articles of Incorporation of the Company – incorporated by reference to
      Exhibit 3.1 of the Registrant’s Annual Report on Form 10-K on December
      31, 2006 and Exhibit 3.1 to the Company’s Current Report on Form 8-K
      dated March 9, 20093.2
            Certificate
      of Determination – incorporated by reference to Exhibit 3.1 to the
      Company’s Current Report on Form 8-K dated March 9,
20094.1
            Letter
      Agreement, dated March 13, 2009, including Securities Purchase Agreement –
      Standard Terms attached thereto as Exhibit A, between First Northern
      Community Bancorp and the United States Department of the Treasury, as
      modified by the Side Letter Agreement, dated March 13, 2009, between First
      Northern Community Bancorp and the United States Department of the
      Treasury, as modified by the California Side Letter Agreement, dated March
      13, 2009, between First Northern Community Bancorp and the United States
      Department of the Treasury (filed herewith)4.2
            Warrant
      to purchase 352,977 Shares of Common Stock (common shares) of First
      Northern Community Bancorp, issued to the United States Department of the
      Treasury on March 13, 2009 (filed herewith)*10.1
            Form
      of Senior Executive Officer Waiver (filed herewith)31.1
            Certification
      of the Company’s Chief Executive Officer pursuant to Section 302 of the
      Sarbanes-
              Oxley
      Act of 200231.2
            Certification
      of the Company’s Chief Financial Officer pursuant to Section 302 of the
      Sarbanes-
              Oxley
      Act of 200232.1
            Certification
      of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant
              to
      Section 906 of the Sarbanes-Oxley Act of 200232.2
            Certification
      of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant
              to
      Section 906 of the Sarbanes-Oxley Act of
2002


*
Management contract or compensation plan or arrangement in which executive
officers are eligible to participate








SIGNATURES








Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.








FIRST
      NORTHERN COMMUNITY BANCORPDate:
                  May
      8, 2009
                  By:
                  /s/  Louise
      A. WalkerLouise
      A. Walker, Sr. Executive Vice President / Chief Financial
      Officer(Principal
      Financial Officer and Duly Authorized
Officer)